Platted Vacant Land Deferment
March 2009
The platted vacant land deferment is a special tax program administered by the assessor for property that has been recently divided into unimproved, individual lots. It was first enacted during 1992 in an effort to address the legislature’s concern over discrepancies in the way platted properties were valued throughout the state and to provide favorable tax treatment to land developers who had to market and sell their lots. Since then, the plat law was amended in 2001 and 2008 to redefine how these parcels should be valued during the phase-in period. The taxable market value assigned to these lots must reflect their relative value until the deferment has ended due to expiration of the phase-in, sale, transfer, or if construction began.
Does an owner of unimproved property who divides it into individual lots have to file an application with the assessor for the platted vacant land deferment?
No, the plat law does not require a property owner to file an application with the assessor for this tax benefit. The value exclusion is automatically extended to each unimproved, individual lot once the subdivision has been recorded and the property records created. By design, the phase-in amount of the excluded value is added to the property’s taxable market value each year until the deferment expires.
How is the platted vacant land deferment calculated for each individual lot?
The assessor must estimate the market value of all platted land not improved with a permanent structure according to it highest and best use. In establishing the market value for each property, the sale price of the lot or comparable sales of similar land having the same environing influences, services, and uses are considered. However, the taxable market value of each lot is based on a specific timeline and the difference between the un-platted market value and the current platted market value. For non-metropolitan counties outside the Twin Cities, there is a seven year phase-in period that requires the assessor to increase the taxable lot values for each assessment year immediately following the final plat approval by one-seventh of the difference between a property’s un-platted market value and its current platted market value. In the seven-county metropolitan area, this phase-in period is only three years and the incremental change in taxable market value is based on one-third of the difference between a property’s un-platted and current platted market values. After the first assessment year following the plat’s recording, any change in the market value of a property due to market forces causing valuations to either increase or decrease is made along with the addition of the annual phase-in amount. Therefore, the difference between the taxable market value of a platted lot and its market value during the phase-in period is the value exclusion subject to the deferment (unless limited market value applied to a change in the market value of the property prior to the 2009 assessment).
For example, if an unimproved ten acre parcel having an un-platted market value of $100,000 was divided into ten individual lots of equal utility and size on July 1st, then each lot would have an un-platted market value of $10,000 for that assessment year. On January 2nd of the following year, the assessor estimates the current platted value of each lot to be $80,000. In a non-metropolitan county, each lot would be subject to a seven year phase-in, resulting in a phase-in amount of $10,000 ($80,000 - $10,000 = $70,000/7 years) each year. For the seven-county metropolitan area, the phase-in based upon the same un-platted and platted market values would be calculated on three years with a phase-in amount of $23,333, or say $23,300 rounded, ($80,000 - $10,000 = $70,000/3 years) per year.
The illustration below shows how the platted vacant land deferment is added back during the phase-in period in a non-metropolitan county on an individual lot under stable, increasing, and decreasing market conditions:
Stable Market:
| Year | Estimated Market Value | Deferment | Taxable Market Value |
| Platted | $10,000 | | $10,000 |
| 1 | $80,000 | $10,000 | $20,000 ($10,000 + $10,000) |
| 2 | $80,000 | $10,000 | $30,000 ($20,000 + $10,000) |
| 3 | $80,000 | $10,000 | $40,000 ($30,000 + $10,000) |
| 4 | $80,000 | $10,000 | $50,000 ($40,000 + $10,000) |
| 5 | $80,000 | $10,000 | $60,000 ($50,000 + $10,000) |
| 6 | $80,000 | $10,000 | $70,000 ($60,000 + $10,000) |
| 7 | $80,000 | $10,000 | $80,000 ($70,000 + $10,000) |
Increasing Market:
| Year | Estimated Market Value | Deferment | Taxable Market Value |
| Platted | $10,000 | | $10,000 |
| 1 | $80,000 | $10,000 | $20,000 ($10,000 + $10,000) |
| 2 | $82,000 | $10,000 | $32,000 ($20,000 + $10,000 + $2,000) |
| 3 | $85,000 | $10,000 | $45,000 ($32,000 + $10,000 + $3,000) |
| 4 | $90,000 | $10,000 | $60,000 ($45,000 + $10,000 + $5,000) |
| 5 | $91,000 | $10,000 | $71,000 ($60,000 + $10,000 + $1,000) |
| 6 | $93,000 | $10,000 | $83,000 ($71,000 + $10,000 + $2,000) |
| 7 | $99,000 | $10,000 | $99,000 ($83,000 + $10,000 + $6,000) |
Note: The increase in estimated market value is added to the taxable market value each year along with the phase-in amount until the deferment expires. The phase-in amount is not adjusted and remains constant during the phase-in period.
Decreasing Market:
| Year | Estimated Market Value | Deferment | Taxable Market Value |
| Platted | $10,000 | | $10,000 |
| 1 | $80,000 | $10,000 | $20,000 ($10,000 + $10,000 - $0) |
| 2 | $79,000 | $10,000 | $30,000 ($20,000 + $10,000 - $0) |
| 3 | $75,000 | $10,000 | $40,000 ($30,000 + $10,000 - $0) |
| 4 | $70,000 | $10,000 | $50,000 ($40,000 + $10,000 - $0) |
| 5 | $65,000 | $10,000 | $60,000 ($50,000 + $10,000 - $0) |
| 6 | $63,000 | $10,000 | $63,000 ($60,000 + $3,000 - $0) |
| 7 | $61,000 | | $61,000 |
Note: The decrease in estimated market value does not affect the taxable market value in years 2 through 5 because it is lower than the estimated market value. The phase-in amount is not adjusted and remains constant during the phase-in period. However, in year 6, the taxable market value would be greater than the estimated market value due to the $10,000 phase-in amount. Since the taxable market value cannot be greater than the estimated market value, only $3,000 is phased-in and the deferment runs out before the end of the phase-in period.
When does the platted vacant land deferment expire?
The platted vacant land deferment expires when all of the excluded value has been phased-in or if construction on the lot begins before the deferment ends. For the 2009 assessment year and beyond, the plat law also requires a vacant lot to be taxed at its full market value if it has been sold or transferred at any time since its initial platting. In other words, a platted lot that sells, transfers, or is built on after platting but before the assessment date of January 2nd loses any excluded value subject to phase-in and its taxable market value is immediately increased to the market value in the next assessment year.
Based upon the examples provided above, if a lot was sold, transferred, or built on in year 4, then its taxable market value in year 5 would be the same as the estimated market value reported in year 5 because all excluded value must be added back due to the expiration of the deferment. In a stable market, the taxable market value would increase from $50,000 to an estimated market value of $80,000. Under the scenario of an increasing market, the taxable market value would increase from $60,000 to an estimated market value of $91,000. If the market was decreasing, the taxable market value would increase from $50,000 to an estimated market value of $65,000.
If the market value of a platted vacant lot is either increased or decreased by the assessor based on market conditions, is the amount of the annual phase-in adjusted?
No, if the market value is either increased or decreased by the assessor during the phase-in period, the phase-in amount cannot be adjusted. The phase-in amount that was established in the first year of platting continues at its current level. In a declining market, the excluded value is phased in at equal increments until such time it equals or exceeds the current market value of the property, resulting in a shorter phase-in period than is recommended by law. In an increasing market, the phase-in amount also remains constant until the platted vacant land deferment expires. At that time, the taxable market value is the same as the current market value of the vacant lot.